2017 December

Monthly Archives: December 2017

We get asked by business owners – why is the cost of invoice factoring higher than a typical institutional bank line of credit. Usually the first thing a borrower calculates is the discount fee multiplied by 12. Unfortunately this is a bad assumption.

When funding using invoice factoring the borrower does not get a loan for a year, instead they get funded for a month or so. This short term access to financing is due to the financial condition of the borrowers’ business. Meaning, their historical financing statements are not strong enough to secure annualized funding. Factoring companies take a larger risk but keep the borrower on a shorter leash.

The primary reason that a factoring company has to charge more for its financing is the heavy transaction load required to service the debt. Each invoice must clear a credit check of the account debtor (customer,) then the invoice is verified as due and owing, and then tracked for payment. It requires more staff, time and resources than a simple line of credit which is largely monitored by a bank computer once the loan is in place.

So even though factoring may seem to cost more in the short term, it is still a very handy tool for growing a business and the cost is relative to the ability to secure outside capital to grow to the next level.

Of course you probably know an invoice factoring company provides business financing by making advances on commercial invoices. An invoice is defined as a product and/or service that has been delivered / completed and accepted by the customer.

In other words we cannot help;

– Sales agents or people looking for an advance of future commissions – there are a few specialty places that do that, but generally commissions are not “invoices”.
– Factors cannot provide up-front capital to open a restaurant.
– Factoring is not for any type of retail store that sells to everyday public consumers.
– Factors do not cash out annual contracts (money today for funds that will be collected over the next year)
– Start-ups who have a new contract but need up-front money to get it going will not qualify until they actually can produce an invoice aka mobilization capital
– No pre-billing on sales or deliveries in the future
– Loan situations related to real estate property are unavailable for factoring.
– And most of all, a factoring company will definitely not pay to help a relative of a deposed government official from a foreign country cash in on a settlement.

Flexibility, reliability, and dedication are the main ingredients to pursue when considering a source for your financing. Look no further than the steady growth and dependable service CCA provides all our clients. Click here to learn more.